Test your understanding: answers
(1). For there to be a degrouping charge:
- shares in a company, say XH Ltd, must be sold, such that XH Ltd ceases to be a member of a gains group, and
- XH Ltd must own assets which were transferred to it at no gain, no loss in the six years prior to the date that it leaves the gains group.
(2). A degrouping charge is equal to the gain that would have arisen if the asset had been sold for market value at the time of the no gain, no loss transfer. Accordingly, details relating to the situation as at the time of the company leaving the gains group are not relevant.
Required:
- The sales proceeds of the company being sold
- √ The market value of the asset at the time of the no gain, no loss transfer
- The market value of the asset at the time the company leaves the gains group
- √ The RPI for the month of the no gain, no loss transfer (or for December 2017, if earlier)
- The RPI for the month when the company leaves the gains group (or for December 2017, if earlier)
- √ The RPI for the month when the asset was originally purchased by the gains group (if prior to December 2017)
- √ The price paid for the asset when it was originally purchased by the gains group
(3).
A There will not be a degrouping charge as SK Ltd will continue to be a member of a gains group with XU Ltd.
B There will not be a degrouping charge as the no gain, no loss transfer took place more than six years prior to PJ Ltd leaving the gains group.
